I Do Not Use Credit Cards

I don’t like credit cards. Many smart people — including my wife — use them wisely and never have problems. I’m not one of those people. Most of my money woes stem from credit card debt acquired when I was first out of college. Eventually I wised up — I have not carried a personal credit card in more than five years.

I have not used a credit card in over two years. So far, I have yet to find myself in a situation where I had to use my credit card. (I still have one, active, credit card account. I keep my card tucked away in my wallet. I’m not sure it actually works anymore. I do not plan to find out.) I do not advocate closing credit card accounts. I have an account that is open and in good standing. I just don’t use it. What have I learned about NOT using my credit card?

Among the lessons NCN has learned:

Spending cash hurts more than swiping a card.

If you don’t use your card, you don’t get a bill.

He doesn’t care about missing cash-back bonuses or card rewards.

He can use a debit card in nearly every place a credit card would work (including car rentals and hotel reservations).

I, too, have suffered no adverse effects from giving up personal credit cards. It helps, of course, that I use a debit card. I also carry a couple of business credit cards, but I have no problem using them responsibly. Business is business, and is completely separate from my personal life.

I’ll admit that I’ve considered trying to use credit cards once more now that I seem to have developed a solid understanding of personal finance. Ultimately, however, I’ve decided the rewards are minimal and the risks too great. For now, I’m credit card-free and proud of it.

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Why would anyone use credits cards for anything other than emergencies or investments with high ROI such as education? I don’t understand the mentality of people who think it’s financially sensible to spend what they don’t have. You’re going to have to pay it back, with interest.

It’s just shooting yourself in the foot. For other things there is such a thing as a debit card.

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Victoria

It sounds to me like all the people that use credit cards to pay for everything and then pay off the balance are kidding themselves about something. It just doesn’t sound right the way they’re all so gung-ho about it. And it sounds lazy and snobbish.

You don’t need credit to live. That’s a myth. Just save and pay for everything, including houses. I’ve seen lots of people who aren’t wealthy do it.

Every time I’ve held a credit card, it felt hollow, and I could just hear the cc companies laughing at me. It seems like a good way to feel totally detached to the real meaning of money.

Credit is just an excuse to make you feel good about yourself.

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Debt F. Destiny

An interesting question, relevant to this topic is, how would not having credit cards affect one’s credit score?

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maltipo

I have credit cards and I love them.

I view credit cards like automobiles. Cars can be driven easily around 200 mph and be dangerous machines. However, most people have learned how to correctly use them.

Credit cards are the same. You can drive yourself into consumer debt or learn how to correctly use them. This is where people get into trouble with credit cards. They step on the gas, forget the brakes, and don’t stay within the limits.

Unfortunately, there are no “credit card” education classes. So, not a lot of people know what can help them or hurt them.

I use them to earn rebates, track expenses, investing purposes, emergencies, and even raise my credit score.

Even if you use credit cards, you need to know things like how your balance affects your credit score, why to raise your limit, and how to move balances (balance transfers are bad).

At the end of the day, credit cards are just tools, like cars. It all depends on you on how you utilize them. They can be productive or destructive. There are advantages to credit cards.

Learn how to use the plastic and you’ll be able to use productive tool to your advantage.

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S E Brown

I don’t have credit cards, but I use a debit card for those situations where a pseudo credit card is required. I’ve never had a problem. I also find that in the current economy, my lack of credit card balances owing has certainly been to my benefit, both financially and emotionally. I encourage everyone to ditch their credit cards and live on a cash basis.

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christi pemberton

First let me say that having one card, in case of emergency is understandable. I find it humorous the comments here who are just appalled at the notion of “not using credit cards”. See, now you are seeing that even those who are responsible users of cards are having hard times with the credit card industry. Look at what is going on now as credit cards are raising interest rates, closing accounts, and slashing your credit line because they are trying to get as much money possible due to this economy…and they are doing it to people who are responsible card holders. How many times have we heard stories of people with good credit and paying their card on time, and those who do not carry a lot of credit debt being targeted in this way..and now they found themselves in a mess. These are not just people who were handling their cards irresponsibly, these are now the good and responsible customers who are feeling the pain from the credit card industries. Now that we are expecting legislation for credit card reform, the credit card companies are doing even more of these unsavory activities to get more money. For those who believe that your credit card is safe from theft or i.d. theft, or you feel that you may not have as many problems by just keeping a card….well, thieves are becoming more sophisticated in their tactics, debit cards are stepping up to the plate to offer better protection, and you can use your debit card to rent hotel rooms and cars…I have rented a hotel room easily at the Hyatt. Plus, we as Americans need to admit that we are just addicted to credit cards, they are a crutch for us….even if we do say we pay them off every month. Why keep something that can raise your interest rate at the drop of a hat, regardless of how responsible your are? So, this is all proving that it is better to pay off your debt, find new ways to earn extra income so you may afford larger spend items without using a card, and get off the credit card addiction. Of course, keep one just in case you have an emergency.

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Myself

Sandra,
I’ve actually done that. I set up a reservation for a hotel room, and gave them the number off of my debit card to be used as a Visa.
No problem whatsoever.

Yes, some systems are so archaic that you either have to choose the way you want to use it, or it does it automatically unless you tell them to use it as a credit card. But most are not like that (at least as I’ve found in my small travels).

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Sandra

Neither credit cards or debit cards are evil. What is evil is how people use them.

I have one credit card that I pay off at the end of the month. I have been to the other extreme, but now that I am straightened out, I will never go back.

I’d like to see you reserve a hotel room or rent a car without a credit card. I have been there, too.

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Steve in MA

“I have to eat, buy gas, pay utilities,etc. All those costs are pretty much fixed and will be paid regardless [whether or not I use cash or a credit card].”

In truth, neither gas, nor utilities, nor especially food, are fixed costs. Eating, in particular, can cost anywhere from $100 per person to $2000 per person or more per month. It is by no means a “fixed” amount that you will spend whichever mode of payment you use. It is my experience that I will spend more using a credit card to eat out all month and to buy groceries than I do when I spend out of a pile of cash in an envelope because with the cash I see the cash disappearing along with the fact that I have to make it last to the end of the month, whereas I might not even notice the climbing credit card balance, and even if I do the numbers on a statement are much more abstract, and make much less of an emotional impact on me(cause less of an impulse to conserve the money) than the sight of a stack of twenties leaving my hands.

Utilities are controllable as well, within a degree. As is gas.

When you are serious about saving as much money as possible and meeting financial goals on a limited income, all of these categories are fair game. And using cash to pay for them is a reasonable and extremely effective tactic. It all depends on what your goals are. If you want to save money, you may very well find a cash envelope system to be the best system of all for controlling your money.

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Greg

2% cash reward cards are free money. Not only do you get that cash back, but also you get a free short-term loan until the end of the month on your balance (if you pay in full each month) and you get leverage with your merchant in case they rip you off (they don’t want you to complain to the credit card company, it makes them look bad). I buy almost everything on my credit card and use cash mostly just for coffee.

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michael motorcycle

personally, ever since I was 16 yrs old, I knew the credit system was a trap. I was forced to get a social security number then. it smacks of tyranny to me. I have never applied for a credit card in my life. I have been waiting for the system to crash, and now Im watching it happen. while others are freaking, I am cheering. Usery is evil. oh btw I haven’t even used a bank account in about 4 years. I am way ahead of ‘the game’. the people who are really prepared for the future: the homeless.

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Jim

@Myself

Yes, you must be careful when you are doing the balance transfers. In addition to your point about not making purchases on cards which you did a balance transfer, you also need to talk to the company and ask them if they have any transfer fee’s and how those are charged.

For example, most credit cards, if they charge a balance transfer fee (most do), will put treat that transfer as a cash advance. Now this is VERY BAD. Because those transfer fee’s will be charged the highest interest rate (15% or higher) and you wont even be able to pay those off until the balance transfer is paid off first. This is because like the poster above said, the credit card companies will put your monthly payment towards the lowest interest rate first.

So lets say you have a balance transfer of $2000 at 0%, you charged $600 at 8.99%, and your balance transfer fee was $100 at 15.99%. Everytime you make a monthly payment, all that money is going towards the $2000 at 0%, while your $600 and $100 balances are sitting there with interest compounding daily.

So bascially what I am saying is try to find a card that offers no transfer fee (they are out there) or ask the company how the transfer fee is charged. One company I did a balance transfer with just includes the fee along with your balance transfer, so if you transfer $2000, your balance will be $2100 but it will all be charged the same rate.

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Myself

I too have done the same as you Jim. My wife and I have at one point borrowed $45,000 or so on our credit cards that had a very low or zero rate.
Some things I noticed
– we earned money from the interest after putting it in the savings account
– we had to pay the minimum payments. This either came from our pocket, or from the money that we borrowed (typically the latter). The flip side of this is that if we used our own money to pay for the card (i.e. because it was locked up in a CD), then we essentially were paying money out of our own pockets to make money, instead of simply taking what we paid on the CC into a savings account and being done.
– don’t charge on the same card that you do a balance transfer. The reason for this is that your payments are put mostly (if not completely) toward the lowest rate balance FIRST. So if your charge rate is 4% or higher and you’re charging on the card that you did a balance transfer at 0%, your effectively making nothing.
– the way to use the rewards cards is to only charge on them the money that is paid in full every single month (so there is no balance on the card).
– after reading several Dave Ramsey articles (and visiting http://www.livinglikenooneelse.com), we switched to using cash only to purchase groceries. We started with an immediate target of spending $200/month LESS than we spent using the CC, and were quite successful at it for the last 6+ months. This was an 18% reduction in spending on monthly groceries alone!

As you mentioned, being disciplined is the key to any of this working at all!

You’ll notice that in a previous post I mentioned that we got back over $600/yr by doing what you are doing. However, since we’ve cut our grocery budget, we’re not spending an extra $1,200/yr, thereby making it a moot point on using the CC to make our purchases.

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Jim

I think credit cards can be used to put a nice chunk of change BACK in your wallet. Right now, I have a credit card with a balance of $6500; and I am gladly using it every chance I get. Wanna know why?

I got 0% APR until January of 2010 (got the card September of 2008). So what I do is this. Pay for anything and everything I can with the card (hell, I even tell friends to let me put their purchases on my card and just give me the cash). Then, take that money (cash) that I would have used to buy the item and put it in my savings account (4%APY). This way I earn interest on cash I theoretically don’t have (as I already have it ear-marked to pay off the credit card before I get slammed with interest charges).

So lets do the math. The limit on this card is $8,000 (although I may ask for a higher limit). I know I will have the card maxed out before January of 2010, so I will have a balance of $8,000 on the card. Which means, I have an extra 8,000 in my savings account collecting interest. $8,000 x 4%APY = $320. So I just made myself $320. If the card has some type of reward system or cashback, it would be even better! (maybe next time)

There are potential pitfalls to this if you are easily tempted. You could see that $8000 in your savings account and slowly start convincing yourself that it wouldn’t hurt to use some of that money to buy something small. And before you know it, you have purchased 50 small things and when it comes time to pay off the card, you only have $6,000 to pay off a $8,000 before you start incurring interest charges. But as long as your disciplined, you’ll be good!

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Jason

Anonymous,
I do not use Credit. I have cash lying around in the form of Emergency funds. The concept of borrowing is not the right message . Live within your means and learn to save. Cash is king. If i want to buy a car, I will use cash. And I always negotiate the price down, that is for a new car. Although buying a new car does not make much economic sense since they depreciate quickly. Not everyone needs credit. Please speak for yourself.

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Ohyeah

Sorry about all the misfortune, I’m glad to see alot of people back to normal and moving on and hopefully none of you will have a relapse… maybe we should start a debt anonymous program. Hi my name’s Bob i’ve been a recovering debtaholics for about 5 years.. one day at a time guys, one day at a time.

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Myself

Wow Glenn. I could have written your post about 8 years ago. Except our debt was almost 3 times more than yours is.

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Glenn

Hello,

I just found this site and have been surfing around here a bit. It looks fantastic with a lot of great ideas. Hopefully I can contribute back for what I learn from here.

Now about Credit Cards…
They are a tool, nothing more, nothing less. With a tool you can either build, or destroy. Many people don’t seem to realize the great opportunities afforded with them and instead swing them around wildly, wreaking havoc wherever they go. Allow me to elaborate.

My personal experience directs me into keeping 2 CC accounts open with around a 15k limit on each one. Now although current times have reigned in limitless credit, what’s generally been my practice is to play the “transfer” game. Before I became debt free, I would use these valuable tools to aquire very low interest rates, thus allowing more of my payments to be directed towards principal. They very often would send out offers to do a balance transfer with little to no money for the transfer and a very low interest rate. I was able to put $13k of one particular loan that I was paying 10.75% onto a balance transfer to CitiBank for 2.9% for the life of the loan. This was a HUGE savings! The biggest trick is that you can’t use it to CHARGE things on it then, as your payments get diverted to the lower interest, and you’re stuck paying an exhorbant interest on your “purchases” until the entire transfer is paid.

So with a mentallity that a Card is more of an “instant loan” and not a vehicle of impulse purchasing is key. Sometimes they will offer very low rates for 6 or 9 months, in which case you plan and budget to either pay it off, or pay it way down in that time frame, allowing the small remaining principal to default into their higher rate, still a huge savings.

Another avenue that many have mentioned combines online shopping, Gift shopping (Christmas?) and other planned purchases that you ALREADY have the cash for. As long as you have no balance, then using Cards for purchase that you immediately pay off gives you an additional 2-5% discount in the long run. In regard to online shopping, using Cards versus using a debit card, in my opinion, feels much safer from a hacker standpoint. Let’s say scumbag-hacker steals my ID for my CC, at least he doesn’t have access to my bread and butter for paying my monthly utility bills. I can resolve whatever ID issues arise without worry about a lifestyle interruption.

In summary, a CC can be a very useful tool, one just needs a little discipline and some planning so that they don’t destroy their financial house in the process of trying of remodel it.

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Sean

Very interesting article and one that is widely debated. I currently own a condo here in Chicago and plan to purchase a home in the next few months. My credit sore isn’t as high as it should be but I’ve worked hard to pay down most of my debt into a house payment, car payment, college loan, and credit card. Lenders are now saying my credit score is not high enough and it’s due to my lack of open credit cards with balances on them.

I find this crazy that people are recommending that I open a few more credit cards and have under 40% of the available balance used to raise my credit score. I’m certainly not trying to get in more debt to purchase a new home.

I asked if having a larger down payment would help vs. increasing my credit card debt and several people have said no……!

Huh???

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Myself

Eric said: “Banks make money on these and the only person I want making money from me is me.”.
As others have mentioned, ANYONE can make money from a credit card. We get an extra $600+ every year, simply for buying things that we would have bought anyway. But on credit cards.
As others have said, it is a personal issue. Some have self-control, and others do not.
My wife and I recently (as in yesterday) purchased 3 new laptops. We were planning on replacing our outdated PC equipment at home anyway (it’s been almost 8 years since our last PC purchase). Guess what, they had 0% financing for 36 months. And yes, we took advantage of it. We will make sure to pay it off in full in 35 months, and be done. All the while, leaving an emergency fund sitting in the savings account, earning 4%+.

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Julie Ramsey

I do not use a credit card except for safety: online purchases and unusual situations. If the service or item is not as described, you can dispute the fee. Credit cards take away your privacy; anyone with a few smarts can access your online or over-telephone information. Credit cards benefit big banks, and take away your freedom too. A CASHLESS SOCIETY IS ONE THAT CAN BE TRACED AND TAXED.

I havent used a credit card or debit card or had a checking account for 5 years. Banks make money on these and the only person I want making money from me is me. Stop using banks would be the best thing to do but unfortunitely I dont get paid in cash

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Praveen S

I appled for about 3-4 credit cards just to get the $50 perks and join on bonuses and then I cancel a few months later although I feel kind of guilty doing so. Does anyone know what I mean?

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timothy j fallaw

i don’t use credit cards because i don’t like interest rates

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Spamchop

Christine: You need to read the Paypal terms and conditions you agreed to. Moving your money into a Paypal account is rather foolish. Since Paypal is not a bank they are:

1. Not FDIC insured
2. Not required to follow any sort of banking regulations.

They can and will lock your account for any reason. Kiss your money goodbye.

(it’s all fun and games until someone fraudulently opens a Paypal account using your snail mail address and they lock your account for fraud…)

I haven’t had a credit card in four years. Mortgage went away two and a half years ago along with the car payment. I looked at my life at where I used to live, sold over-taxed, over-priced real estate, quit my job and went someplace warmer.

Sure there’s a lot of bennies that credit cards offer, but it doesn’t overcome the mental benefit of owing nothing.

I live cheaply now. No cable, No live television, nothing beyond the Sunday paper. No movies or eating out, or take out. My place was paid for in cash from the old one.

It depends on the person. My wife and I find that we have less wasteful spending by using cards only and not taking cash out. This is because when we tend to have cash, we tend to spend it on a bunch of little things that we don’t really need – things we wouldn’t whip the card out for. Also, we live within a budget and have our own personal ‘allowance’ to spend as well.

I think credit cards are bad for people that tend to make LARGE spontaneous purchases. Meanwhile cash is bad for people who tend to make many small spontaneous purchases.

NCN. So you don’t worry about building credit? I guess you always have enough cash lying around to buy a car? Or a half a million dollar home?

Everyone needs credit. You just have to use it right.

I can go a month using cash. That’s easy. I just don’t like carrying all that change around. That’s what a debit card is for.

Like I said, my credit cards are simply for internet purchases, car rentals, or emergencies. Pay in full every month.

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knuffel

I use the feature of balance transfer and benefit from 1.99% interest rates on my credit card. Yes.
First I calculate how much I can pay off before the 1.99% expires and that is the amount I transfer.
Otherwise, I spend no more than I can afford to pay off the next month. That way I don’t pay interest at all. Kind of like overdraft.

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beanspants1

i have no particular opinion on not using credit cards, but keeping them open. i agree that it somewhat seems like to you are getting your “revenge” against them, but hey, that always worked for Rambo and Chuck Norris, so go for it. i used movie “revenge” over real “revenge” for a reason – it doesn’t actually hurt anyone and it’s a bit of fun.

however, 2 points on the comments:
1 person mentioned fund transfers and high balances: that’s a good SHORT TERM strategy, but you will lose in the long term. Pay them off in whatever order you choose, don’t f’ around with transferrng $10k around to save $100 bucks. it’s not worth it, and if you mess up, you’re out your $100 bucks. and you will mess up.

Point 2: Way too many people in this tread mentioned having American Express credit cards. WHY? why have a card that gives you a pittance back, and makes you pay for the privledge? Plenty of cards offer cash back for no annual fee. if you really want the credit industry to get better, stop rewarding the ones who rip you off. American Express has no advantages over other cards like it used to. they always try to play up the “no credit limit” thing, but if you need a higher credit limit, all you have to do is call to raise your limit if you have a MasterCard, Discover, or Visa.

and i’m probably one of the people who spends more per purchase with a credit card than i would with cash, but make way fewer purchases with credit cards, and if i have cash, I use it all up. ie if i have a $20 in my pocket, then lunch or the grocery store trip is gonna be $20. so it all evens out.

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Greg C

You know, I had trouble with debt myself at a young age, but at least I didn’t starve ( my debt was for things like food and books). I found myself “rock bottom” I guess and swore I would never live/feel that way again.

And that is the reason I now use credit cards and do so RESPONSIBLY. I realize some people are “addicts” and feel the only way to overcome their addiction is abstaining. Well good for them, but I prefer to deal with problems head-on and manage them.

I also HATE HATE HATE preachy a-holes. You know the type like Ramsey who make a moral case of this stuff ( which is easy to do if you are a millionaire with a comapny that pays its bills late…)Whether its debt, gambling, alchohol , whatever. My philosophy is one of individualism and responsiblity.

So I appreciate JD’s rational sane response that different things work for different people. I am not going to call someone who doesn’t use credit an idiot, but don’t call me one for having self control.

As far as NCN’s points: No I don’t spend less if I use cash. I have to eat, buy gas, pay utilities,etc. All those costs are pretty much fixed and will be paid regardless. I buy the type of food and amount I need regardless,etc. There is nothing to “cut” by using cash, unless I am going to take food away from my family or something.

In fact my wife spends a lot MORE when she has cash. Believe me I’ve tested it out. I gave her a card to pay for everything and it saves money. Everything goes on there, food, utilities, whatever. End of the month it all gets paid in 1 electronic transfer.

Buying a house costs less than renting. I know this isn’t the case everywhere but it is in many places. My mortgage may have (small)interest but it costs less than renting and not building any equity. When I retire ( well I’m semi-retired in my 20s, and I never plan to retire 100%, so I guess I mean when I’m “old”) my home will be paid off.

My student loans are 2.6%- I have no interest in ever paying them off ( except on time). They made me a lot more money than they cost.

I have never financed a car and I bought my current used car cash almost 10 years ago. As long as I can remember I have hated the thought of financing and buying new cars. However, when I need my next one I am going to get a NEW car. Might use cash or a credit card, but if I can get 0% through the dealer, hell why not.

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JRsail

My husband and I haven’t used CCs for 4 yrs because we were in debt bad. Couldn’t even keep up with the mins. We had used the 4 major cards for medical bills and to get our sailboat ready for travels. Thinking that we would be able to keep up with the bills. But, that never happened. After the creditors and collectors drove us nuts for a long time, we serched for a det consolidater and found Debt Settlement USA. They take 12% and then keep the wolves at bay till we can get the money together to settle 40% of the total bill to each creditor. Well slowly we are getting things taken care of. We don’t ever want to go through this again.

We have a debit card and it works fine for reservations and car rentals. Just have to make sure the money is there and be responsible.

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Filip

All accounts begin at 0 (zero). You can put money onto a credit card (actual credit) before you debit money out of it, effectively using it as a debit card.

Plus you’ll have protection (something debit cards don’t have).

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name

You are a moron.

You screwed up and went into debt, now you piss and moan like a whining infant instead of accepting the responsibility.

Credit cards are NOT evil; they are a tool. Being “anti-credit cards” is a childish revenge tactic for your previous mistakes (debt).

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NCN

I don’t really worry about “building my credit”. I don’t plan on ever borrowing any money. As for the “safety” issues involved, I use a debit card linked to a checking account with no over drafts allowed and a fixed amount of money. I’ve never run into a problem. Granted, I don’t travel that much, but I’ve rented cars on 2 occasions, and stayed in hotels multiple times. No worries. As for carrying cash, I usually keep a couple hundred dollars on me. For those of you who feel you use cc responsibly, let me give you this challenge. Go for ONE month using cash only (or checks) and tell me how you do. I find that I spend WAY less when I use “real” money. Be honest. Don’t you spend a “little” more when you swipe that card? Why do you think fast food joints now take credit cards? Because, they are so “easy” to use. NCN

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moneymonk

Im with you Get rich slowly. I do not have a credit card. And most importantly, I do not have credit card debt.

No regrets!

One thing I hate is as Adam said :

Rental car companies, for example, generally reserve an extra $250 from your account on top of whatever they are going to charge you.

I hate that. But Im willing to live with it.

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Emily H.

I wonder at the statistic that people spend that much more when using a credit card–how was it obtained?

My credit card purchases are much higher than my cash purchases for one simple reason: I don’t like carrying more than $60 or $80 in cash, so when I buy a camera, or an iPod, or a computer, or a few housewares, naturally I use a credit (or debit) card.

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Adam

I’m trying to rebuild my credit and thought having a credit card would help since I had nothing in the “accounts in good standing” section of my report.

I just got it this month and plan to only use it for gas as well as any misc things that require credit cards. I also transfer cash to a separate account to match what I’ve spent on the card so that it still “hurts” the same, hopefully helping to keep me from spending more than I can afford.

Speaking as someone who just recently got a card, debit cards are great until you have to rent a car or get a hotel room. I know it can be done with a debit card, but it’s usually a pain. Rental car companies, for example, generally reserve an extra $250 from your account on top of whatever they are going to charge you. Yes, that money is returned a few days after the car is, but it’s a pain. I’ve seen some that simply won’t even take a debit card.

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Angie

I think it’s pretty interesting that there are several different ways to cope with credit–and I concur with JD that it probably just boils down to psychology. More power to the people who really can stand to game the system and keep all those plates spinning without having it all come crashing down. For most others, paying off balances in full each month or avoiding credit entirely is a big load off the mind.

My husband and I are in the “pay it off in full” camp, generally, but we appreciate being able to use credit and carry a balance when necessary. This spring we bought a second house (so we could turn the first into a rental). The new house was a great deal because it was something of a fixer, and we knew we’d run up a balance for a while getting it whipped into shape.

So we did. I think the highest total on all our cards was $5K. It took about 8 months til it was all gone and we were back to paying in full each month. I hated every minute that we had those balances but I appreciate how much easier it was to get that money than taking out a personal loan for that short of time.

I supposed we could have gotten a HELOC, but I think those are *really* playing with fire compared to credit cards. The miniscule tax break isn’t worth breaking into that piggy bank!

We’ll probably run ’em up again briefly when we tackle a few more cosmetic upgrades in the future.

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icup

jag nogg –

I am one of that 1% (LOL). I only buy gas with my card and pay it off in full every month. I would need to fill my tank no matter what, so I don’t think I’m spending 30% more by using the card.

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ageekymom

My husband & I stopped using credit cards about 15 years ago after ruining our credit rating with huge credit card debt, owing more than $30K. Except for one incident involving renting a car from Hertz at an airport years ago, we have never had a problem using our debit cards. BTW – Alamo allowed us to rent with a debit card.
A couple of months ago we got another credit card, and I’ve got to admit, it makes me nervous. I never want to be in the hole because of a credit card again!

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Jag Nogg

Even if you pay off your entire balance each month and earn cash back, you may still be hurting yourself financially by using a credit card. That’s because people spend an around 30% more when they use a credit card. So, unless you are getting a 30% cash back reward, you are probably spending more money than you would if you used cash or debit.

Of course, everyone will claim to be in the 1% of the population that doesn’t actually spend more while using credit. Statistically speaking, that isn’t true. It comes down to behavior and being honest with yourself.

Personally, I tend to spend more when I use credit cards, so I avoid them at all cost.

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Angela

JD do you have a credit card account? Do you use your wife’s credit card – not as in actually take it and use it, but if you two need to rent a car do you use her credit card as a deposit?

I could live without using my credit card, although its a great cashflow tool as I pay off the bill in full every month by direct debit. I don’t think I could live without the account for car rental deposits, or for having a credit record. In a real emergency where I had to leave home at short notice I would use my credit card as a proxy for my emergency fund transferring the money from the actual savings accounts at the first opportunity.

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MillionDollarJourney.com

J.D

I’m not sure about the states, but here in Canada using a DEBIT card is MUCH more dangerous than using your credit card. Debit cards and the bank accounts attached are not insured if someone gets your PIN number where Credit cards are covered for fraud.

We still have 2-3 consumer credit cards for our family use, but only for very specific reasons:

(1) We use an L.L. Bean card for buying stuff from the L.L. Bean catalog/web store because it gives you free shipping, which can sometimes represent a HUGE savings. (Also free monogramming, which is kind of cool.)

(2) We use a low-interest platinum card for online purchases. As others have mentioned, debit cards typically do not have fraud insurance and that makes them a real liability. Somebody mentioned using Paypal; sorry, but PayPal SUCKS and my experience with them has been horrible.

(3) When I have to purchase stuff for my work — I’m a professor and have to do a lot of little individual purchases, e.g. meals and hotel when I’m at a conference — I use the credit card and then let the college reimburse me. Since I get reimbursed for stuff like this within a week of turning in the expense report, I can always pay off the balance.

The main thing about credit cards is YOU MUST NOT CARRY A BALANCE. In my basic math classes I teach students about compounded interest and you should see the looks on their faces when I do the example about carrying a $5000 balance on a 20% interest credit card for a year.

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Dan S.

Something I don’t hear mentioned often enough in discussions of living without a credit card is the way banks handle identity theft. If a criminal manages to sneak a charge onto your credit card, the inconvenience to you is limited to having to contest the charge. By law, your liability is a maximum of $50, and most credit card companies will cover the whole thing.

But if a criminal drains money out of your checking account using your debit card, that money *stays out of your account* until your fraud claim is resolved. This can mean thousands of dollars of your money is suddenly inaccessible to you for *weeks*. My recollection is that the legal liability cap is worse for debit cards than with credit cards, and I’m not sure what banks typically promise their customers beyond the law in this case.

I’ve had both a credit card number and a debit card number “stolen” online, and I’d much rather it be the former. I use credit cards for this reason alone, and pay the full balance every month. The money management psychology is indeed trickier, but I’d rather tough it out than give out my debit card number.

Banks will give you plain ATM cards instead of debit cards if you ask. Entering a PIN into a keypad is required to use ATM cards (e.g. at grocery stores), unlike debit cards which can be used like a credit card anywhere.

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jpsfranks

Credit cards are pretty much mandatory for building your credit. I had a totally blank credit history until I finished college (lived at home, used a debit card, paid in-state tuition as I went w/o student loans, drove a used car paid in cash).

Once I moved out on my own I found I was getting blocked at every turn for having no credit. It was tough to get an apartment, and I was even denied a cell-phone deal once. I eventually started out with a secured card (all I could get) and now I have a couple of good rewards cards, which I use for everything I can.

But my question for those of you suggesting that you don’t need credit cards is what do you propose for someone with no credit history? I’d rather build credit for free by paying off my balances on a card than build my credit by paying sub-prime rates on a mortgage.

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BxCapricorn

I’ve had credit cards for over twenty years, and they’re rebated around $300/year and all of the Sony Electronics in my home (except for my computer). All I had to do budget my spending with it and pay the balance off ‘in full’ every month. Do you realize that I would have to have quite of bit of money tied up in a 4.5% money market to get that kind of yearly return. It’s a great talking point though and a great rebate card is a “reward” for having excellent credit, which a goal many of your readers have.

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Christine

I haven’t used a credit card since September 2004. I’ve never missed it as I use a Paypal debit card. You transfer money from your bank account to your Paypal account. Once it’s there you can use your card! Or if you shop online the Paypal card will pull the money right out of the bank account. So you never go crazy as you can’t spend what you don’t have.

The only time I had a nightmare was getting a rental car on vacation. I had a car waiting for me, reserved and no one had a problem. I fly in, go to pick up the car and they refused to accept the Paypal card even thought it had a MasterCard logo. They wanted a bank name credit card. I couldn’t believe it. They accepted it when I reserved the car! So I was high and dry totally screwed until my sister drove a few hours to show them (wouldn’t take a card over the phone) her “real” credit card and put the car on her credit card.

I hate the society we live in that really makes it hard to try to live without a credit card.

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mlathe

I read http://www.2millionblog.com a lot, and he advocates to carry large balances, do 0% transfers, and put the money into a Money Market to earn interest. This appears to be pretty common, but it feels to me like a silly thing to do. Any comments on this?

Personally, I’m not much of a gambler. I don’t play the lottery. I don’t bet on sports. I don’t frequent casinos. In fact, I once spent four days in Las Vegas and couldn’t bring my self to put even one quarter in a slot machine. I know the math. The odds are overwhelmingly stacked against me.

Likewise, I no longer use credit cards for personal expenses. (I have one card for reimbursable business expenses only.) My wife and I got rid of our credit cards about 4 years ago and have been living debt free for over a year now.

It is my opinion that credit card companies exist for one reason, to make money and lots of it. Just like gambling, the odds are stacked against me and in favor of the company. Sure, they may give me a little incentive. They may let me win every now and then, but only because they know if they can get me to play then they can most assuredly make money from me in the long run.

Sure, I know about cash back, using their money for free, frequent flier miles and all the clever ways to use credit. But, I also know that I’m not as clever as I sometimes convince myself I am. I’m certainly not as clever as the plethora of marketing execs, accountants and lawyers the credit cards have working for them.

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Jason

Aside from the ability to track expenses, the rewards, etc., many credit cards offer lesser known perks for free: warranty doubling, 90 day theft/damage insurance, price matching assurance. I never buy extended warranties because purchasing with my card gets me twice the manufacturer’s warranty (and I have used this feature with Amex–very convenient and no hassle).

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Ty

One good reason to occasionally use a credit card is that Debit cards are, in my experience, not insured. I use my credit card for online purchases, but otherwise it is used only in emergencies.

Disclaimer: The previous statement is based on my personal experience at three community banks over the past couple of years. (I move too much)

Great Blog BTW.

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Jacki

My POV:
My husband and I use our Discover card for just about everything. It’s so much easier than always going to the bank for cash, and we pay it off in full every single month, so we never have to worry about interest fees. And the cash back bonus is great! I have $100 sitting there for me to redeem now, which will probably be turned into $125 at The Gap or Bed Bath and Beyond. That’s free money!

Another bonus: The credit card statement/website helps me keep track of expenses when my husband loses or forgets to give me his receipts. I log onto the website daily to check our latest balance and make sure we’re not getting out of control for a particular month.

For gas, we use our Shell card and get 5% back on all Shell gas purchases. It’s a great deal!

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Kevin

I can respect your decision, and his as well. However, I was actually thinking of typing up an article along the lines of “Credit Cards: It Isn’t All Bad.” True, there are a ton of things bad about credit cards. If you can’t control your use of one, then by all means stay away. The interest rates are ridiculous, changing of terms on the policy in fine print is ridiculous, etc.

Yet, I ONLY use credit cards. It ‘hurts’ just as much to me because I understand getting dinged with a bill. I pay the entire bill every month. I use AMEX’s Blue Cash and even with the tiered reward categories (6,500 = 5% and 1.5%), I’ve managed to earn $148.xx in the past 5 months using it.

I charge utilities (fairly predictable), work lunches (required by my job), gas, groceries, insurance, you name it. If someone steals my card and racks up $10k on it, AMEX won’t hold me responsible. I know that Visa’s checkcard claims the same thing for debit cards, but when $10k disappears from your bank account you hurt immediately.

Just my two cents.

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anonymous..

Congrats to the individual from No Credit Needed. That’s a huge step, considering you haven’t used a CC in two years.

Let me ask you this though. What if you are trying to build credit? What are other ways of doing that without a credit card line or two?

I’m one of the few that still uses my CC for online purchases, car rentals, and emergencies. I try hard as possible not to carry a balance though. I pay them IN FULL, even before the monthly is due! I’ll make two or three payments in the same month if I have to, just to make sure I don’t owe anything. In the back of my mind, carrying a balance really BOTHERS ME! You have to have that mindset.

Jay — I agree, I’ve found that some reservation agencies like rental cars and hotels won’t take a debit card to hold a reservation, but that was several years ago, and I I think that has mostly changed. Then again, I don’t se a debit card, so I’m not sure.

I do know that some hotels will accept a cash deposit rather than a credit card to hold a room, but when so much is booked online or over the phone, that doesn’t work so well that much any more.

J.D.’s right about psychology. People look for a one-size-fits-all solution… that’s why these personal finance books and gurus are so popular; they promise easy solutions to complex problems. But the world, at least what I’ve experienced so far, is not one-size-fits-all.

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Geoff

Use a credit card only for specific purposes. American Express, for instance, has a card that pays 5% back on groceries or petrol. Using that card only for those purposes will keep your bill predictable. I spend about $800 a month on these items, and Amex helpfully pays for $40 of that for me.

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jay

It’s not true that you can rent a car with a debit card everywhere. I tried to rent a car from Hertz at Newark Airport and was denied. I talked to managers, called customer service, tried to pay cash, and was still refused. I had to take the train back home (45 minutes) and then back out there to get a car… on the evening before Thanksgiving.

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J.D.

I’ve got to say that I can’t really understand this sentiment

As with many money-related issues, I believe this comes down to psychology. We’re all different. We each have different ways of seeing and interacting with the world. In my case, personal credit is problematic. Something inside me allows me to rationalize its use for little things, which turn into big things, which turns into mountains of debt.

Obviously I am not the only one with this problem. There are milllions of people in the U.S. who have problems with credit card use. Some of us are bright college-educated folk who know that we’re making poor choices.

The same goes for the debt snowball. I understand the math behind paying high-interest debt first, but the fact is that method never worked for me. I never felt like I was making any progress. It was only once I tried the debt snowball and could see and feel these little victories that I got excited about turning my financial life around.

It’s all about psychology and doing what works for you.

I admire those like my wife (and like you) who don’t have money issues. I wish I could be that clinical. I can’t. And so long as I realize that, I’m going to do my best to prevent future problems.

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Gaming the Credit System

I’ve got to say that I can’t really understand this sentiment, from you or anybody else. I also can’t understand your advocacy of the Debt Snowball; I guess my financial psyche is just different from yours. As you can tell from my blog’s name, I’ve got more of a detached attitude towards money; to me, it’s not the emotional heavyweight that it seems to be with many others.

I am working on a couple of posts about credit card and general financial management right now on my blog. They should be up in the next couple of days. Maybe they will give some insight and possibly change your mind.

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